FSA has published the 2010 Financial Risk Outlook. It has divided this year's report into four main sections covering:
- macroeconomic background and outlook: this section looks at how developed economies, specifically the UK, have fared in the last year and says the UK economy is expected to grow in 2010. However, it identifies a number of downside risks and what these might mean for firms;
- financial stability and prudential risks and issues: in this section FSA looks at the transition to a new capital regime for banks and building societies, stress testing, funding challenges and the new liquidity requirements. It also addresses margin challenges brought by low interest rates. The section also looks at prudential risks and issues for insurers, including highlighting concerns over an unstable claims environment in general insurance. Finally the section covers risk management practices in financial firms and assesses how the crisis has heightened certain risks and highlighted certain deficiencies;
- market risks and issues: this section covers changes in the markets, particularly transparency in OTC derivatives markets and the greater use of centralised clearing and settlement leading to the greater systemic importance of central systems. It moves on to look at the changing structure of equity markets and trading platforms and notes its concerns about market abuse and the possibility of product innovation again leading to excessive risk taking; and
- retail conduct risks and issues: the final section looks at the conduct risks that arose from the crisis and how customer behaviour has adversely impacted on some firms. It looks at how the crisis has highlighted deficiencies and identifies areas of challenge.
FSA will carry out more analysis of the risks and issues it identifies in the Outlook and many of them will be the basis of the priorities FSA will set out in its imminent Business Plan. Alongside the Outlook, FSA published sectoral digests for the asset management, banking, insurance and retail intermediation sectors.